Maryland Tech Tax Starting July 2025

June 2025

Historically, the State of Maryland has only taxed the sale of physical goods as well as a handful of services such as sports equipment rental and pay per view.  During the 2025 legislative session, earlier this year, they decided to start taxing less tangible items such as software development services.  Rather than the 6% tax assessed on physical goods they’ve instead imposed a 3% Sales and Use Tax on Maryland-based businesses (consumers of these service) effective July 1, 2025.

The specific businesses (sellers aka vendors) subject to collecting the new tax at the 3% rate are:

  • Data or Information Technology Services described under NAICS Sector 518 or 519, or Subsector 5415; and
  • System Software or Application Software Publishing Services described under NAICS Subsector 5132.
  • If you’re looking for more detail in determining if you, as a vendor, need to start collecting this tax from your customers, please see the NAICS guide.  Please make sure to use the 2022 version lookup tool.

The key point for most vendors is the location of the customer, not the location of the vendor providing the services.  So, if the customer is located in the State of Maryland then in most cases the vendor will need to collect 3% Sales and Use Tax from that customer.  Here’s a more nuanced breakdown:

Vendors selling or delivering tangible personal property, digital codes, digital products, or taxable services in Maryland must register for a sales and use tax account, and are required to collect the sales and use tax on a retail sale, unless an exemption applies.  Here are the three categories of vendors to consider:

  • In-state vendors selling to a Maryland buyer – vendor must collect
  • Out-of-state vendor with physical presence in Maryland selling to a Maryland buyer – vendor must collect
  • Remote vendor (no physical presence in Maryland) selling to a Maryland buyer – vendor must collect if, during the previous calendar year or the current calendar year, the vendor meets the following criteria:
    • Gross revenue from the sale of tangible personal property or taxable services delivered into Maryland exceeds $100,000, or
    • Makes sales of tangible personal property or taxable services for delivery into Maryland in 200 or more separate transactions.

There are very few exemptions to this new tax but here are a few:

  • Sales of cloud computing services to cybersecurity customers
  • Sales to or by certain qualified vendors located in the University of Maryland’s Discovery District
  • Sale for resale (the vendor intends to resell the taxable service in the form that the vendor receives or is to receive the service, and has not used the service)
  • Sale to a charitable, nonprofit, or government tax-exempt entity

Earlier this year, just after the new law was passed, there was some thinking on the part of tech service vendors that moving their registration to another state besides Maryland would avoid having to collect this tax.  As you can see from the above that is not the case unless you have no physical presence in Maryland AND the total dollar amount of sales to customers in Maryland is below $100,000.  For most tech service vendors they would not fall below this threshold and therefore would have to collect this new tax.

Another important point is that even if the tech service vendor does not collect tax from a Maryland customer, for whatever reason, it is the ultimate responsibility of the customer, not the vendor, to make sure the Sales and Use Tax is paid.  So, there is no way for a Maryland based customer using these services to avoid this new tax.  Maryland based customers (consumers of these types of services) should also carefully review their various service providers.  If they think that a particular vendor should be collecting this tax it’s probably a better idea to reach out to this vendor proactively to inform them of the new guidelines rather than possibly incurring a large, unexpected tax burden at a later time.

If you’d like further information, please see this helpful YouTube link provided by the Comptroller of Maryland.